An investment strategy is a set of hypotheses that help investors achieve their investment and financial goals. Some key investment Strategies are formulated based on the investor’s financial objectives, risk tolerance, and target corpus. They are also formulated with the short-term and long-term goals of the investor in mind.
These strategies are curated by both the investors themselves and portfolio managers. A static strategy is not viable in all situations, so you should change your strategy accordingly. Therefore, if you are starting your investment journey, it is important first to take the time to research key investment strategies for investing your money. That way, you can use the techniques below that best suit your financial situation and life goals.
5 Key Investment Strategies to Look for
There are many ways to approach investing. With too many options, choosing the best model can take time and effort. Let’s consider some of the most effective wealth-building and wealth-protection key investment strategies.
1. Value Investment
In this strategy, investors look for traded stocks that do not match their intrinsic value. There can be two cases either Overvaluation or Undervaluation
- Overvaluation refers to a situation in which a stock’s trading price is higher than it should be, and undervaluation refers to a situation in which a stock’s trading price is lower than it should be.
- Investors buy when stocks are undervalued and sell when stocks are above intrinsic value. An investor must be patient and wait for the stock price to rise, which may take a year or more.
Advantages Of Value Investment
- Stocks typically carry a high degree of risk. Still, value investing techniques allow investors to focus on undervalued stocks and buy and sell potential stocks to increase the value of related stocks.
- Investors can benefit from value investment such as capital gains when these shares sell for more than their intrinsic value. Generous Returns – We use safety margins, so returns are typically above average over the long term.
These advantages make value investment one of the key investment strategies.
2. Growth Investment
This strategy is focused on fundraising. Investors who employ this strategy buy stocks of companies that show signs of outperforming earnings growth relative to the market or industry. These are typically young or small, up-and-coming companies with high-profit potential and risk.
If a company is considered to have higher growth potential, future performance is expected to improve, and the stock will trade at a higher price-to-earnings ratio (PER). These companies typically hold patents or have access to technology that gives them an edge in the industry and ensures long-term growth.
Advantages of Growth Investment
- In growth Investment, The higher the return, the higher the risk-reward ratio. In addition, the return on investment (ROI) remains high, which is beneficial for long-term growth investments.
- Capital appreciation is one of the key aspects of growth investing. Unlike other investment methods, this particular segment has the highest returns. The primary focus continues to be on blue chip, growth, solid or leader categories rather than defensive stocks.
3. Income investment
This strategy focuses on generating a regular income stream. These portfolios typically include bonds, stocks, real estate investment trusts (REITs), exchange-traded funds (ETFs), and other investment vehicles that generate the highest annual passive income.
Income typically consists of dividends, bond yields, and interest income with minimal risk.
Advantages of Income Investment
- It provides a great opportunity to supplement your permanent income by generating additional income through your assets.
- In the long run, income investment strategies can create capital stock growth, ultimately increasing the asset stock.
4. Socially Responsible Investment
This investment strategy considers social impacts and environmental impacts. Investments are typically made in companies committed to socially conscious activities such as social justice, alternative energy, clean technology, and environmental sustainability. Investments are not made in companies that negatively impact society, such as cigarette manufacturers or companies that provide gambling services.
The two main goals for socially responsible investment strategies are economic return and social impact. It is impossible to achieve the two simultaneously, as socially conscious investments may yield poor returns and investments in companies. Still, it also minimises the risk of loss of your capital investment.
Advantages of Socially Responsible Investment
- An increasing number of companies are recognizing the need for SRI strategies. They realise that this investment is about more than just making a company look good in the eyes of investors. Rather, it is a strategy that can become crucial to the company’s survival.
- More companies are now investing in socially responsible activities. And when that happens, socially responsible investing can help you avoid the risk of losing money for years to come. Following current trends, future investments may lean more toward environmental, social, and governance (ESG) investments. Sustainability goes beyond just being green and ethical.
5. Small Cap Investment
Small-cap investment strategies are designed for those who want to take on more risk in their portfolio. Small-cap investing involves buying shares in small companies with small market caps (usually between 2.27 Billion Rupees and 165 Billion Rupees)
These small-cap stocks tend to get less attention due to their inherent risks, limiting institutional investors (such as mutual funds) when investing in companies of this size. Small-cap investments are for experienced equity investors due to their high volatility.
Advantages of Small Cap Investment
- The main advantage of investing in individual small-cap stocks is that they offer significant growth potential that large companies cannot match. Small-cap value index funds also offer passive investors a way to increase returns.
|Value Investment||Investors can buy and sell potential stocks to increase the value of related stocks.|
|Growth Investment||Capital appreciation is one of the key aspects of growth investing.|
|Income investment||In the long run, income investment strategies can create capital stock growth and asset stock growth.|
|Socially Responsible Investment||Socially responsible investing can help you avoid the risk of losing money for years to come.|
|Small Cap Investment||Investing in individual small-cap stocks is that they offer significant growth potential.|
Investing is one of the best decisions you can make for yourself, but it cannot be easy to start. Knowing what key investment strategies to follow is just one of the keys to successful investing. It also helps you know how to select the right stocks for your portfolio regarding income, growth, and diversification.
Simplify the process by choosing and sticking with key investment strategies that work for you and sticking with it. As you learn more about investing, you can expand your strategies and the types of investments you can make.